SECTION I.1: IMPORTANCE OF TRADE AND INVESTMENT AND ECAT’S ROLE
ECAT and its member companies recognize that trade and investment are critical components of a healthy world economy. ECAT’s mission, since its formation in 1967, has been therefore to promote economic growth through the expansion of international trade and investment. This section provides an overview of the importance of trade and investment to the U.S. and global economies and of the role that ECAT and its member companies play in the promotion of liberalized trade and investment.
Why International Trade and Investment Are Important
Trade and investment liberalization are essential elements in the economic growth and improvements in the standard of living enjoyed in the United States and throughout the global economy. The United States remains the world’s largest trading nation, accounting for approximately:
- 12.6 percent of world goods trade in 2004, as the world’s second largest exporter and the world’s largest importer of goods; and
- 13.7 percent of world services trade in 2004, as both the world’s largest exporter and importer of services.
Source: World Trade Organization, International Trade Statistics 2005
As a share of the U.S. economy, U.S. trade and investment have grown from 13 percent of GDP in 1970 to over 25 percent of GPD in 2005.
In 2005, U.S. goods exports increased $85 billion to $892.5 and U.S. goods imports rose $201.7 billion to $1,674.6 billion. U.S. services exports rose $34.7 billion to $378.6 billion and U.S. services imports rose $26.1 billion trade to $322.2 billion. According to data from the Office of the U.S. Trade Representative, 81 percent of the increase in U.S. goods and services exports from 1994 onward are a result of more liberalized trading rules. Such exports are important to spurring growth and a higher standard of living in the United States. Exports support one in five U.S. manufacturing jobs.
Imports have also grown significantly, increasing the variety and availability of products throughout the United States, benefiting U.S. consumers with improved choices and prices. Imports are also important to improve the competitiveness of U.S. companies, who have greater choice of inputs. As well, imports play a major role in dampening inflationary pressures and, in turn, helping to keep interest rates low.
Global flows of foreign direct investment also have been an increasingly important source of worldwide economic growth and integration. The International Monetary Fund estimates that since 1970 global capital flows as a percentage of GDP have increased almost tenfold for advanced economies and more than fivefold for developing economies. Outflows of U.S. foreign direct investment have grown too, increasing from just under $5 billion annually in the 1960s to approximately $229 billion in 2004 based on the most recent statistics of the United Nations Conference on Trade and Development (UNCTAD). Such outflows, as well as foreign investment inflows into the United States, are critically important drivers of economic growth and productivity. U.S. foreign direct investment outflows also generate substantial U.S. exports; indeed, the largest market for U.S. exports is foreign-based subsidiaries of U.S. companies as discussed in greater depth in section III.2.
Current U.S. proposals in the WTO on trade liberalization of nonagricultural goods could raise the level of U.S. GDP by $144 billion a year, equal to an additional $2,000 or more for the average family of four. According to economic analyses by the Office of the United States Trade Representative, NAFTA and the WTO Uruguay Round Agreements combined have increased U.S. national income by $40 billion to $60 billion a year. Combined with the lower prices that the reduction in import barriers provides, the income gain for American families equals $1,000 to $1,300 a year from these two agreements.
In assessing the importance of trade and investment, it is also important to consider that:
- 96 percent of the world’s consumers live outside the United States.
- One in three acres in the United States is planted for export.
- 27% of farm income is linked to exports
- Approximately 43 percent of all U.S. manufactured products are exported abroad and workers in those jobs are paid 13 to 18 percent more than the average wage in the overall U.S. economy.
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Contrary to much speculation, increasing trade deficits do not cost U.S. jobs. U.S. unemployment has fallen significantly from 7.5 percent in 1992, while trade deficits over the last decade grew by nearly 300 percent. As the United States undertook significant trade liberalization through the NAFTA and the Uruguay Round, total U.S. employment grew by 22 million jobs between 1990 and 2000, and U.S. average per capita real income rose by 26 percent over the same period. . As explained in the 2006 Economic Report of the President: Job growth in America is driven largely by demographics – population growth and choices about labor-force participation – and macroeconomic policies that affect, in particular, the business cycle. . . Statistics show in layoffs of 50 or more people between 1996 and 2004 less than 3 percent were attributable to import competition or overseas relocation. As further explained in the 2005 Economic Report of the President: According to standard economic theory, the degree to which an economy is open to trade affects the mix of jobs within an economy and may cause dislocations in certain areas or industries, but has little impact on the overall level of employment. . . . . Trade tends to lead a country to specialize in producing goods and services at which it excels. Trade affects the mix of jobs because workers and capital would be expected to shift away from sectors in which they are less productive compared to foreign producers and toward existing and new sectors. |
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Nor has trade reduced wages. Since 1994, the real hourly wages for workers rose 38.4 percent, while prices (as measured by the Consumer Price Index (CPI)) rose at a slower rate of 27.1 percent A Congressional Research Service report concluded: [T]here is likely little causality running from a rising level of trade to poor domestic wage performance. Slow average wage growth is fully and credibly linked to poor productivity growth. A small share of rising wage inequality can be linked to trade, but the great bulk of this trend is probably more soundly rooted in a rising relative demand for skill, growing out of a changed pattern of technological change. Craig K. Elwell, Is Globalization the Force Behind Poor U.S. Wage Performance?: An Analysis, Congressional Research Service, Short Report for Congress, Updated January 12, 2001. |
As further documented in ECAT’s Global Investments, American Returns (GIAR), global integration has strengthened the U.S. economy by generating new U.S. economic activity here at home for American companies and their workers in the form of expanded research and development, capital investments, purchases of inputs and services, and exports, as well as better, higher-paying U.S. jobs. The fact is that American companies with global operations are generally able to make greater contributions to U.S. economic growth than purely domestic firms because of the opportunities provided by their participation in world markets.
ECAT’s GIAR study and the 1999 Update also demonstrate that the foreign direct investment of American companies has complemented, rather than substituted for, economic activity in the United States in areas determinative of productivity, such as research and development and capital investments. In addition, over 70 percent of the total income earned by the foreign affiliates of U.S. firms is repatriated. This in turn has promoted economic growth and a higher standard of living in the United States. While job dislocations have occurred in the process of global integration, they have not weakened the U.S. economy. Over the past two decades, as American firms have sought opportunities in global markets, they have maintained some three-quarters of their total employment in the United States. At the same time, the foreign affiliates of American firms are an important market for American companies with global operations, accounting for over 40 percent of U.S. exports. Furthermore, the output of the foreign affiliates of American companies is not flooding U.S. markets; over 90 percent of their exports are sold outside of the United States. 6
In January 2003, ECAT released Mainstay IV: Technology, Trade and Investment: The Public Opinion Disconnect. This study documents that trade and investment are critical components supporting the growth in productivity and the increase in U.S. living standards that the United States has enjoyed over the last decade. This study examines in particular the relationship between trade and investment and the growth in the production and in the use of information and communication technology (ICT) products – products that have together accounted for about two-thirds of the acceleration in U.S. labor productivity over the last decade. This acceleration has been much celebrated, as labor productivity is the single best measure of a country’s overall standard of living. The faster growth rate of recent years implies that U.S. living standards now double in only 28 years – a generation faster than with the previous growth rate.
The key conclusion of Mainstay IV is that trade and investment play a critical role in fostering the growth of and the demand for ICT in ways that support increased productivity and economic growth. Yet there is a disconnect in public opinion that needs to be addressed. Americans strongly embrace technological progress, even if it results in job loss, while, at the same time, they are apprehensive over the trade and investment liberalization that helps make such technological progress possible. The study recommends:
- Action by policy makers and business leaders to articulate the essential role of trade and investment in the production and use of new technologies.
- The promotion of expansionary trade and investment policies, including new trade- and investment-liberalizing agreements and policies that promote and protect U.S. investment abroad.
- The promotion of further trade and investment liberalization in the technology sector.
- Bipartisan reform and modernization of the adjustment assistance programs.
It is also important to note that the global integration of the U.S. and other economies is not a new phenomenon. Indeed, the world achieved a relatively high degree of global integration during the period from the late 1800s to World War I. That integration was reversed, however, as a result of political conflicts and the enactment of shortsighted protectionist trade policies, such as the prohibitively high Smoot-Hawley tariffs in the Tariff Act of 1930 that presaged the great U.S. depression. Much of the last half of the 20th century, then, was an effort to regain the level of integration that had been achieved by World War I. It was only in the early 1980s that the world was able to exceed the level of economic integration achieved in that earlier period.
ECAT’s Activities to Promote Greater Trade and Investment
Since its formation in October 1967, ECAT has played a leading role in promoting trade and investment liberalization, promoting strong protections for international investment and opposing protectionist efforts to restrict trade. Throughout 2005 and into 2006, ECAT has been active on the full spectrum of trade and investment issues, including the following:
Trade and Investment Negotiations. Building upon its prior work, ECAT has actively continued its efforts to promote concrete trade and investment liberalization through the negotiation and implementation of regional, sub-regional and bilateral free trade agreements, as well as the global negotiations undertaken as part of the Doha Development Agenda of the World Trade Organization (WTO). ECAT has been active on several different fronts in promoting this agenda:
In addition to the coordination of key aspects of the Business Coalition’s activities, ECAT was at the forefront in 2005 in developing the messaging and developing and implementing the business community strategy to seek Congressional approval. Key ECAT activities included the following:
- Development and distribution of 50 state profiles on the importance of CAFTA.
- Preparation and distribution of numerous one-pagers, messages of the week and more extensive papers used in Congressional visits to identify the benefits of CAFTA. Papers included general overviews to specifics on national and state economic impact, labor, environment, and investment.
- Development of key arguments and documents to rebut opponents’ claims on labor and the environment, including comparisons of the CAFTA labor chapter and all recent FTAs, including the Jordan FTA, and a summary of the very strong labor law provisions of the CAFTA countries.
- Development and coordination of the Business Coalition’s website – www.uscafta.org – the most extensive business community website for any recent FTA that includes numerous ECAT and non-ECAT documents.
- Coordination and participation in numerous meetings with the Administration, and House and Senate leadership, as well as hundreds of meetings with Members of Congress and their staff and numerous Congressional briefings.
- Testimony and briefs prepared by ECAT on its own behalf and on behalf of the Business Coalition on the commercial benefits of CAFTA before the House Committees on Ways and Means, Energy and Commerce, and International Relations.
- Coordination and participation in numerous meetings with Ambassadors, Central American and Dominican Republic trade ministers and other officials on strategies to achieve Congressional implementation of CAFTA.
- Organization and hosting of Business Coalition reception at the Organization for American States following Congressional approval of CAFTA.
ECAT also worked throughout the year to promote improved Congressional understanding of the WTO. ECAT also worked to oppose a resolution calling for U.S. withdrawal from the WTO, which was successfully rejected. As a founding member of the American Business Coalition for Doha (ABCDoha), ECAT also supported broader business community efforts through active support on messaging, policy and Congressional outreach.
During the Hong Kong Ministerial, ECAT met regularly with U.S. and foreign delegations and co-hosted two high-profile business community events demonstrating the high importance placed on these negotiations by the U.S. business community.
China. ECAT also worked extensively with others in the business community to prevent Congressional adoption of S. 295, which sought to force China to adopt a market-based currency valuation within six months, subject to the threat of a 27.5 percent tariff on all U.S. imports from China. In addition to setting up and participating in dozens of meetings, ECAT prepared key policy papers relating to S. 295 and China issues more broadly to help prevent growing concern over U.S.-China trade relations to bubble into counterproductive legislation. Through the work of ECAT and others in the business community, the Senate deferred a vote on S. 295 for the year.
Throughout the year, ECAT also worked to help support progress in key aspects of the U.S.-China trading relationship, particularly with regard to China’s implementation of its WTO commitments in the areas of government procurement and intellectual property.
Russia. ECAT continued efforts with ECAT companies and key Administration officials to promote concrete progress on WTO accession negotiations, supporting company efforts to promote improved commitments in agriculture, goods and, particularly, key service sectors.
Investment. Throughout the year, ECAT continued to play a leading role in key investment issues being considered in ongoing negotiations and by Congress. Following up on last year’s successful effort to reverse the Administration’s denial of access to arbitration for existing investment agreements, ECAT welcomed the conclusion of the Oman, Peru and Colombia negotiations with the model investment text. ECAT is continuing to work to ensure that FTAs with Ecuador, Panama, Thailand, the United Arab Emirates and future FTAs and bilateral investment treaties incorporate the strongest possible protections for U.S. investors overseas. ECAT also continues to be an active voice in opposing proposals that would undermine the objective national security review process that is in place in the United States to review foreign acquisitions, as administered by the Committee on Foreign Investment in the United States (CFIUS).
Government Procurement. ECAT helped form and acts as secretariat to a new International Government Procurement Coalition to promote improvements worldwide on procurement activities. Much of this year’s focus was on preventing China’s adoption of discriminatory new procurement rules on software, which China agreed to delay one of the outcomes of the U.S.-China Joint Commission on Commerce and Trade. ECAT continued to work with the U.S. government to press China to begin and conclude quickly negotiations to join the WTO Government Procurement Agreement. ECAT and the broader coalition also monitored progress on the ongoing work of the WTO in simplifying the GPA and in pressing for strong government procurement commitments in FTAs.
Export Controls and Unilateral Sanctions. ECAT continued to work to ensure that export controls fully reflect the commercial issues faced by our companies and that unilateral sanctions are eliminated. In particular, ECAT worked with its member companies to prepare comments on proposed changes in deemed export control regulations that would undermine commercial operations through overly restrictive requirements.
Trade Remedy Issues. ECAT led several broad-based business community efforts in opposition to Congressional attempts to take any discussion of rules reform (e.g., antidumping, countervailing duty and safeguards) off the WTO Doha negotiating agenda. Such proposals would unnecessarily tie the hands of U.S. negotiators and give other countries the leverage to seek exclusion of their most sensitive areas. In September, ECAT prepared and coordinated a letter from several leading business associations in opposition to Amendment No. 1665 to H.R. 2862, the Commerce, Justice, Science, State FY 2006 Appropriations bill, which would have eliminated the ability of U.S. negotiators to agree to any changes on rules, although that is already an agreed mandate of the Doha negotiating framework. This amendment was rejected by the Senate. In December, ECAT again prepared and coordinated a letter from several major business and agricultural associations in opposition to the inclusion of language in the tax reconciliation bill that would have unduly restricted U.S. negotiators’ ability to engage in rules negotiations. The tax reconciliation conference is still pending.
ECAT also worked extensively to support Congressional efforts to bring the United States back into compliance with its existing WTO commitments on rules, in particular through the repeal of the Continued Dumping and Subsidy Offset Act (the so-called Byrd Amendment), which has been found by the WTO to contravene U.S. commitments. The repeal of this legislation was included in the budget reconciliation package (S. 1932) on February 1, 2006.
The Continued Need for Trade Outreach
Despite the importance of trade and investment liberalization in supporting economic growth and a high standard of living in the United States, there remains much skepticism in Congress and the broader public on whether the United States should continue to pursue liberalized trade and investment. In their 2001 book, Globalization and the Perceptions of American Workers, Kenneth Scheve and Matthew Slaughter review public opinion surveys dating back to the 1930s documenting this uncertainty. Their review indicates that while a large majority of Americans acknowledge the gains from globalization, a plurality to a majority are worried about the impact of trade and globalization on labor issues, particularly wages and jobs.
In Congress as well, there remains uncertainty over the value of liberalized trade and investment policies, although Congress was finally able to pass Trade Promotion Authority, as part of the Trade Act of 2002. Yet there remain deep divides on the role, objectives, and value of U.S. trade and investment policy. These concerns have been accentuated in 2003 and 2004, particularly with respect to offshore outsourcing.
Given the gap between public perception and most economic studies that demonstrate the value of trade and investment liberalization to the growth of the U.S. economy, it is clear that trade outreach efforts must continue and be reinvigorated. ECAT is committed to continuing and heightening its efforts in this area. In addition to ECAT’s new study discussed above, ECAT also plans to continue the use of and further develop trade outreach messages to communicate the benefits of trade to Congress, as well as to American workers and their families.
ECAT’s Trade Outreach Messages
ECAT’s trade outreach messages are based on focus group research on public attitudes and sentiments about trade carried out with ECAT member company employees and the general public in different parts of the country. The findings of the research indicate that pro-trade supporters need to talk about trade in ways that not only inform, but also respond to public anxiety about the impact of trade and economic expansion. The research also revealed that positive trade messages must be: (1) credible, and not “oversell” the benefits of trade; (2) centered around how trade and investment support a better home and family life; (3) focused on the ways in which employees personally benefit from their company’s role in trade, and (4) organized around the theme of trade as a road to life and growth.
The research also found that certain words and phrases are more effective than others when talking about trade. Words such as higher standards of living, unlimited possibilities, choice, pioneer, opportunity, growth and explore are all positive terms to use when describing the benefits of trade. In contrast, words such as open trade, free trade, open markets, competition, more jobs, or global economy are likely to raise public anxiety about trade and should be avoided in communicating the benefits of trade.
ECAT has shared its message research with the broader U.S. business community, to help to shape communications on key issues on the U.S. trade agenda. In 1999, ECAT’s message research formed the basis of the communications developed by the U.S. Alliance for Trade Expansion for the Seattle WTO ministerial. ECAT also used the message research in developing its “food chain” proposal intended to put the spotlight on the human aspects of trade liberalization by focusing on the elimination of barriers to food trade. In 2000, ECAT’s message was used as the basis for the advertising and development of materials to promote PNTR with China. In 2001 and 2002, ECAT’s message helped form the basis of the communications developed by USTrade in support of Trade Promotion Authority and of pro-trade advertising developed by ECAT and The McGraw-Hill Companies. In 2005, similar themes were also included in advertising in support of Congressional approval of CAFTA.
ECAT’s Trade: Discover the Opportunity (TDO)™ Employee Outreach Program
In October 1999, then ECAT Chairman Ernest Micek and Congresswoman Jo Ann Emerson (R-8 MO) inaugurated ECAT’s innovative, website-based employee trade education program at a full-day trade education training session for ECAT member companies in St. Louis, Missouri. The TDO program is based on ECAT’s message research and is constructed around the themes of opportunity, growth, and success for individual employees. The program messages focus on how trade is helping employees achieve a better life and offers real life examples of ordinary Americans who are achieving their dreams because of expanding trade opportunities.
Under the TDO program, each subscribing ECAT member company is supplied with a set of trade education materials, such as posters and a newsletter template, which can be downloaded from the TDO portion of ECAT’s website. The TDO website also includes a “best practices” bulletin board, where we encourage ECAT member companies to share their experiences in implementing trade education programs. The materials are designed to be easily modified to fit individual company communications styles.
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